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Business

German Investors Fret About Business Interests in South Africa

Political changes in South Africa -- Germany's biggest trading partner on the African continent -- will likely put the left-leaning Jacob Zuma in power next year. This has German investors worried.

Jacob Zuma

Zuma's likely ascendance to power has rattled investors and markets

Kgalema Motlanthe was sworn in as the new president of South Africa on Friday, Sept 26. The former trade union leader and deputy leader of the ANC (African National Congress) is widely seen as a caretaker president until next year's elections, when African National Congress leader Jacob Zuma is expected to take the helm.

The charismatic Zuma is a deeply controversial and polarizing figure in South Africa. While the country's poor celebrate Zuma as a savior, the South African business community as well as foreign investors fear a tilt toward the left and away from pro-business policies.

Kgalema Motlanthe

Kgalema Motlanthe has been sworn in as new South African president

Germany, which is South Africa's biggest trading partner on the African continent, is closely following political developments since the recent exit of President Thabo Mbeki, who presided over South Africa's longest period of economic growth before the ruling African National Congress forced him to resign.

In 2006, trade between the two countries amounted to 11.5 billion euros ($16.8 billion).

Around 600 German firms have a presence in the country, hiring a total of 90,000 workers, predominantly in the automobile sector, chemical industry, engineering and electronics.

Investors wary of Zuma's left-leaning allies

It's easy to see why foreign investors are drawn to South Africa. The country boasts modern infrastructure, a well-developed banking and financial services sector, a rich supply of raw materials and cheap energy and electricity prices. But one thing missing on that long list is political and macro stability, the subject of heated debate in South Africa.

It's not just Zuma's deep involvement in a corruption affair that's rattled investors. His close links to the powerful COSATU trade union, the South African Communist Party (SACP) as well as to the traditionally influential youth league of the ANC have all sparked unease among the country's foreign trading partners.

Andreas Wenzel, commissioner for South Africa at the Hamburg-based Africa association, said German companies were jittery about political developments in South Africa and closely monitoring the situation, in particular how ministers close to the business-friendly Mbeki were reacting.

"They (German firms) are adopting a wait-and-see attitude about whether they will continue to have a say in South Africa's business policies or whether the government is going down a new path," said Wenzel, who is currently in South Africa with a delegation of German mid-sized companies.

A blessing in disguise?

In an apparent move to reassure investors rattled by the crisis, President Motlanthe on Friday reappointed respected Finance Minister Trevor Manuel.

Manuel is largely considered as a guarantor for South Africa's stable economy with average growth rates of five percent.

That is certain to sooth markets. Some, however, aren't so worried about the economic fallout of the changes in the country's political leadership, saying it could be a blessing in disguise.

South African flag

Flag-making can be a lucrative business for investors in South Africa

"I don't see a fundamental change of course in financial policies when I look at the shadow cabinet that Zuma's presented," said Joergen Vogt, CEO of German flag-maker Fahnenfleck that's been in South Africa for two years. The company, which employs 80 people in a factory in Pinneberg in northern Germany, has four distributors in Cape Town and Johannesburg for South Africa's rainbow-colored national flag and emblems.

"It's possible that Trevor Manuel's stringent financial policies may be weakened but it remains to be seen whether that hurts us as a company that makes and distributes products for the South African market or whether it works to our advantage by allowing us to sell our products to a larger consumer base," Vogt said.

Electricity crisis a huge hurdle to investment

Others point out that Mbeki's business-friendly image and the perception that he ensured South Africa's economic stability and growth during his rule are deceptive.

"A maximum of five percent growth in a country rich in natural reserves during a raw material boom is really the minimum you would expect," said Wolfgang Drechsler, long-time correspondent for German business daily Handelsblatt in the region.

Thabo Mbeki

Mbeki's business-friendly image wasn't all it was made out to be, critics say

Mbeki actually failed in a lot of things, particularly in the electricity crisis, Drechsler said.

"When he (Mbeki) and Nelson Mandela came to power in 1994, the country had electricity reserves of 31 percent. That's completely melted away today because the government just twiddled its thumbs and did nothing for 10 years," he added.

The massive electricity crisis, in addition to mounting violent crime and a recent spate of xenophobic attacks, remains the biggest impediment to foreign investment in South Africa. The country's national electricity provider ESKOM doesn't come close to filling the huge demand for it, ensuring that blackouts are a near daily occurrence.

Vogt, the optimistic German investor, agreed that electricity was the single-biggest challenge to his business.

"That's a key factor we need to consider when we think of building an energy-intensive plant in South Africa," he said.

Ironically, South Africa's electricity crisis could provide a big chance for German energy firms. The country has plans to drastically expand its electricity production by 2012.

Wenzel said he was in South Africa with a delegation commissioned by the German Economics Ministry to size up opportunities for German firms to help the country boost its energy supply.

"South Africa needs reconciliation"

Despite its economic challenges, it's not just business policies that will seal the fate of the rainbow nation but rather the ability to unite the deeply divided country, some say.

"Zuma is certainly no angel," Drechsler said. "He's a man with a lot of flaws but he's shown that he's pragmatic in everything that he's done and he has a high emotional intelligence which means he's someone who can heal divisions-- that's exactly what South Africa needs."

South Africa doesn't need business gurus because it's a country that's disciplined by the markets, the journalist said.

"What South Africa still needs -- particularly now after Thabo Mbeki so deeply divided society -- is reconciliation," Drechsler said.

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